TaxTMI 
TaxTMI 
2020 (8) TMI 345
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....Company Appeal (AT) Insolvency No. 549 of 2018 whereby, the Appellate Tribunal has rejected the contention that the application made by respondent No. 2 under Section 7 of the Code, seeking initiation of Corporate Insolvency Resolution Process-'CIRP' for short in respect of the debtor company (respondent No. 1 herein), is barred by limitation; and has declined to interfere with the order dated 09.08.2018, passed by the National Company Law Tribunal, Mumbai Bench- Hereinafter also referred to as 'the Adjudicating Authority' or 'the Tribunal' or 'NCLT' in CP(IB)- 488/I&BP/MB/2018, for commencement of CIRP as prayed for by the respondent No. 2. 2. A brief introduction of the parties and the subject matter as also a thumbnail sketch of the relevant orders passed in this matter and the issue involved shall be apposite at the very outset. 2.1. The appellant Shri Babulal Vardhaji Gurjar has been the director of the respondent No. 1 company viz., Veer Gurjar Aluminium Industries Pvt. Ltd. - Hereinafter also referred to as 'the corporate debtor' On or about 21.03.2018, the respondent No. 2 JM Financial Assets Reconstruction Company Pvt. Ltd. - Hereinafter also referred to as 'the fina....
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....g for different periods of limitation are contained in the Schedule to the Limitation Act, 1963 that is divided in three major Divisions viz., First Division (relating to suits); Second Division (relating to appeals); and Third Division (relating to applications). Each Division is further divided in parts with reference to the subject matter. However, the Articles in the Schedule are arranged ad seriatim. Hence, for brevity and continuity, the Articles are mentioned with reference to 'the Limitation Act' only. The Schedule and particular Part/Division have been referred wherever required contextually and hence, the application is within limitation. 4. In this appeal, the order so passed by the Appellate Tribunal is in challenge. The appellant would contend that limitation period for an application under Section 7 of the Code is three years as per Article 137 of the Limitation Act, where the date of alleged "default" is the starting point of limitation; and in the present case, such date of default being specifically mentioned as 08.07.2011, the application filed by the respondent No. 2 in the month of March 2018 is barred by limitation. On the other hand, the respondents would a....
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....ndian Overseas Bank was classified as NPA on 05.08.2011. Then, on 15.11.2011, demand notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002- Hereinafter also referred to as 'the SARFAESI Act' was issued by Indian Overseas Bank to the corporate debtor and its guarantors. These steps were followed up with recovery proceedings against the corporate debtor by the consortium of lenders and respondent No. 2 in OA No. 172/2013 before the Debts Recovery Tribunal, Aurangabad-'DRT' for short under Section 19 of the Recovery of Debts Due to the Banks and Financial Institution Act, 1993- Hereinafter also referred to as 'the Act of 1993'. 6.3. Even when the aforesaid proceedings were pending before DRT, on or about 21.03.2018, the respondent No. 2 moved an application before the Adjudicating Authority under Section 7 of the Code, in Form 1 as provided in the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016- Hereinafter also referred to as 'the Rules of 2016', for initiation of CIRP in relation to the corporate debtor while stating its own capacity as the financial creditor, for bein....
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....reements, consortium agreements and supplemental agreements were mentioned by the applicant. In Point No. 8, the applicant was required to give out other documents "in order to prove the existence of financial debt, the amount and date of default". The contents on this Point No. 8 of Part-V of the application could be reproduced as under:- "8.LIST OF OTHER DOCUMENTS ATTACHED TO THIS APPLICATION IN ORDER TO PROVE THE EXISTENCE OF FINANCIAL DEBT, THE AMOUNT AND DATE OF DEFAULT i. Registered notice dated 05.07.2011 issued by Indian Overseas Bank to the corporate debtor to repay the overdue amount. Hereto annexed and marked as Exhibit MM is the copy of said registered notice. ii. Demand notice dated 15.11.2011 issued under section 13 (2) of the Securitisation Act by Indian Overseas Bank being consortium leader. Hereto annexed and marked as Exhibit NN is the copy of said Demand notice. iii. Publication of Demand Notice issued in two newspaper i.e Business Standard and Saamna under the SARFEASI Act dated 28.12.2011. Hereto annexed and marked Exhibit OO is the copy of said Paper Publication. iii. (sic). Objection to the Demand Notice and the re....
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....udicating Authority, in its order dated 09.08.2018, dealt with the submissions of the parties and, while rejecting the objections of corporate debtor in relation to the frame of application and the correctness of loan accounts, held that the applicant was entitled to initiate CIRP under Section 7 of the Code when there was a debt and there was default; and that being a statutory remedy available to the financial creditor, the corporate debtor cannot question its maintainability only for the applicant having adopted other proceedings under other enactments. As regards the question of debt and default, the NCLT, inter alia, observed and held as under:- "16. The Corporate Debtor contended that demand notice issued under the SARFAESI Act, by Indian Overseas Bank does not contain the date of NPA of the loan of Corporation Bank. The petitioner in the rejoinder submitted that the date of NPA of Corporation Bank was mentioned as 08.07.2011 in the SARFAESI Notice. This Bench has gone through the SARFAESI Notice and the date of NPA of Corporation Bank is mentioned as 08.07.2011 at pg. no. 579. Hence this contention of the Corporate Debtor fails. Further the explanation to Section 7(....
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....ium; and appointed the interim resolution professional. Previous round of proceedings in appeal 8. Aggrieved by the aforesaid order dated 09.08.2018, the appellant, erstwhile director of the corporate debtor, approached the National Company Law Appellate Tribunal in Company Appeal (AT) (Insolvency) No. 549 of 2018 under Section 61 of the Code, challenging admission of the application made by the respondent No. 2. 8.1. The appeal so filed by the appellant was considered and summarily dismissed by the Appellate Tribunal by way of its order dated 17.09.2018. The Appellate Tribunal took note of the contention urged on behalf of the appellant that a petition under Section 19 of the Act of 1993 was pending before DRT wherein question had been raised as to whether the amount was payable to the assignee or not. As regards this, the Appellate Tribunal observed that initiation of CIRP cannot be annulled merely for pendency of a petition under Section 19 of the Act of 1993; and in terms of Section 14 of the Code, all such pending matters cannot proceed during the period of moratorium. 8.2. It was also contended on behalf of the appellant that there was no debt payable. After notic....
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....e respondent was barred by time for, admittedly, the default was committed on 08.07.2011 whereas the application was filed in the month of March, 2018. 9.2. After noticing that the principal issue relating to limitation, though raised by the appellant, was not even decided by the Appellate Tribunal; and after referring to the decision in B.K. Educational Services Pvt. Ltd. v. Paras Gupta & Associates: AIR 2018 SC 5601, wherein it was held that the Limitation Act is applicable to application filed under Section 7 of the Code, this Court remanded the matter to the Appellate Tribunal for deciding the issue of limitation with respect to the application in question in accordance with law while setting aside the impugned order dated 17.09.2018 and while granting liberty to the parties to submit additional affidavit/s in support of their respective contentions. This Court observed and ordered, inter alia, as under:- "Although, we find that the ground articulated in the appeal memo is vague, but, as the objection regarding limitation goes to the root of the matter and touches upon the jurisdiction of the National Company Law Tribunal to proceed with the claim of the respondent;....
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....No. 2 for one time settlement-'OTS' for short. 10.1.1. In paragraph 15 of the impugned order, the Appellate Tribunal referred to the decision of this Court in the case of B. K. Educational Services (supra) as also Section 238-A of the Code to notice that law of limitation is applicable to the application under Section 7 of the Code. However, in paragraph 16, the Appellate Tribunal made the observation that 'for filing the application under Section 7 of the I&B Code, Article 132 of Part 2 (other application) is applicable'; and proceeded to reproduce the said Article 132 of the Limitation Act.( Such a reference by the Appellate Tribunal to Article 132 of the Limitation Act appears to be entirely inapt because that relates to the application to High Court for certificate of fitness to appeal to this Court and provides for the limitation of sixty days from the date of decree or order. Be that as it may, the observation with extraction of Article 132 appears to be a matter of accidental slip; and we would leave the said Paragraph 16 of the impugned order at that only) Thereafter, in paragraphs 17 to 19, the Appellate Tribunal referred to the frame of Schedule to the Limitation Act a....
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...., with reference to its own decision in Company Appeal (AT) (Insolvency) No. 82 of 2018: Binani Industries Ltd. v. Bank of Baroda and Anr., observed that the Code does not relate to litigation nor the proceedings were of suit or money suit; and the period of limitation prescribed in First Division of the Limitation Act is not applicable to the proceedings under the Code. However, thereafter in paragraph 25 of the impugned order, the Appellate Tribunal observed that though the law of limitation as prescribed in First Division, Second Division and Part I of Third Division of the Schedule to the Limitation Act is not applicable, the corporate debtor could take a plea that "debt" is not due, as it is not payable in law being barred by limitation. These paragraphs 24 and 25 of the impugned order read as under: - "24. In 'Binani Industries Ltd. vs. Bank of Baroda & Anr.' - Company Appeal (AT) (Insolvency) NO. 82 of 2018' this Appellate Tribunal held that 'Insolvency & Bankruptcy Code' does not relate to litigation nor it is a suit or money suit. In that background the period of limitation prescribed in the First Division is not applicable through I&B Code proceedings. 2....
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....act has also been accepted and pleaded by the Appellant. 28. The Appellant has suppressed the fact that recently the 'Corporate Debtor' by letter dated 31st July, 2018 approached Respondent No. 2 (Financial Creditor) for one time settlement. There is a finding that there is a continuous cause of action. The appellant has not disputed that 9 properties i.e. land and building have been mortgaged by the 'Corporate Debtor' with Respondent No. 2 - 'Financial Creditor'. Respondent No. 2 also preferred a criminal proceeding on 27th June, 2017 as the enforcement mortgage of which possession was taken by 2nd Respondent after the order passed by the DRT, Aurangabad. 29. Part V (First Division) of Limitation Act relates to 'Suits relating to immovable property' to recover possession of the property mortgaged and afterwards transferred by the mortgagee for a valuable consideration. The period of limitation is 12 years since the transfer becomes known to the plaintiff [Article 61(b)]. 30. In view of the aforesaid position of law, the property having mortgaged, we also hold that the claim is not barred by limitation as the period of limitation is 12 years with regard t....
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....itted date of default as stated by the respondent No. 2, the application in question remains hopelessly barred by limitation. 13.1. The learned senior counsel has elaborated on the submissions with reference to the decision of this Court in the case of B.K. Educational Services (supra) and has contended that therein, it is categorically held that Article 137 of the Limitation Act applies to the application under Section 7 of the Code and hence, the limitation period is of three years, which is to be counted from the date of default. 13.2. With reference to the process envisaged by the Code and the Rules of 2016, where the financial creditor is required to mention the date of default in the application and also to adduce evidence of default, the learned senior counsel has argued that in the application under consideration, which was filed on 21.03.2018, the respondent No. 2 mentioned the date of default as 08.07.2011 and, for the evidence of default, only the documents pertaining to the NPA were attached i.e., until the year 2011. Hence, according to the learned counsel, on the averments as taken and evidence as adduced, the application so filed by the respondent No. 2 is clea....
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....hen the debt became due and payable strictly as per Section 3(12) of IBC whereunder, default means 'non-payment of debt when whole or any part of instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be.' 13.4. The learned senior counsel has further submitted that the reasonings adopted by NCLAT stand thoroughly disapproved by this Court in the decisions above-referred as also that in Civil Appeal No. 7673 of 2019: Sagar Sharma & Anr. v. Phoenix Arc Pvt. Ltd. & Anr. Now reported in (2019) 10 SCC 353 and, therefore, the impugned order cannot be sustained from any angle. 13.5. The learned senior counsel has yet further referred to the three- Judge Bench decision in the case of Jignesh Shah and Anr. v. Union of India and Anr. : 2019 SCC Online 1254- Now reported in (2019) 10 SCC 750 and has submitted that therein too, this Court has analysed in detail the applicability of the Limitation Act to the applications of winding up being transferred to NCLT and has held that enforcement of IBC in 2016 will not give a new life to the time-barred debts; and if the application is filed beyond three years from the dat....
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....peal (page 36 of paper-book) that the corporate debtor is and has always been willing to settle the amount of outstanding loan in one time settlement with the respondent No. 2. The learned counsel would submit that the late attempt on the part of the appellant to dispute the OTS letter issued by the respondent No. 1 is baseless and fallacious because such a contention has been raised for the first time in this second round of appeal in this Court; and that the appellant is rather guilty of taking false pleadings and of perjury in his attempts to mislead. 14.2. While refuting the submissions made on behalf of the appellant, it has been strenuously argued by the learned senior counsel for the respondent No. 2 that the application under Section 7 of the Code is not barred by limitation only because of initial date of default being mentioned therein as 08.07.2011. The learned counsel would submit that the contentions on behalf of the appellant are unsustainable since the debt in question had been legally and unequivocally admitted to be due and payable in writing by the respondent No. 1 all throughout from the year 2011 until 2017 in its balance sheets filed along with annual return....
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....trenuously argued that the amendment applying the provisions of the Limitation Act to the Code came into force with effect from 06.06.2018 but only after filing of the application by respondent No. 2; and testing a post facto applicable statutory provision of retrospective nature in a watertight stringent manner would result in a fatal flaw in equity and the same may also prejudice scores of legal recourse by many other banks and financial institutions currently in Courts/Tribunals on mere technicality that was unforeseen and unconceived in past and hence, the documents making out a case for extension of limitation period could not be filed. Other way round, according to the learned counsel, the unrestrained applicability of Section 238-A of the Code in an anomalous manner suggested on behalf of the appellant would compel all the financial institutions to immediately proceed and file the application under Section 7 before the expiry of three years exactly from the date of default, in spite of the fact that any borrower, in order to overcome its financial constraints to repay might be ready and willing to comply with the requirements of Section 18 of the Limitation Act for extension....
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....nancial creditor. The learned counsel would submit that on the settled principle of law, the interpretation of statute should always be in furtherance to its objective and to give effect to the intent of legislature; and if, for the sake of arguments, the contention of the appellant is accepted that an application under Section 7 of IBC could be filed only within three years from the date of NPA, it would frustrate the objective of IBC to restructure the stressed assets and ensure maximisation of the value of stressed assets. 15.3. The learned counsel has again relied on Section 18 of the Limitation Act and the aforesaid decisions in Jignesh Shah and Mahaveer Cold Storage to submit that the contention of the appellant that cause of action arose in 2011 and right to sue started ticking in the said year is baseless, as the corporate debtor had continuously admitted its liability in its audited balance sheets until the year 2017 and further admitted its liability with an offer for OTS. Therefore, according to the learned counsel, the contention that the debt is barred by limitation cannot be taken by the corporate debtor in the given facts and circumstances besides that such a cont....
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....rty and, therefore, the claim is not barred by limitation. The relevant provisions of the Code and the Limitation Act 17. For determination of the core issue as to whether the application made by respondent No. 2 before NCLAT under Section 7 of the Code is within limitation and for dealing with the submissions made by the respective learned counsel as also the reasonings adopted by the Appellate Tribunal, at the first it would be appropriate to take note of the relevant statutory provisions in the Insolvency and Bankruptcy Code, 2016 and the Limitation Act, 1963. 17.1. The expressions generally used in the Insolvency and Bankruptcy Code, 2016 are defined in Section 3 thereof. The relevant definitions occurring in Section 3 of the Code are as under: - "3. Definitions. -In this Code, unless the context otherwise requires,- **** **** **** (6) "claim" means- (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; (b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, w....
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....his matter, are contained in Section 7 of the Code and read as under:- "7. Initiation of corporate insolvency resolution process by financial creditor.- (1) A financial creditor either by itself or jointly with [other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government,]- The expressions in parenthesis were substituted for "other financial creditors" by Amendment Act No. 26 of 2018 with retrospective effect from 06.06.2018 may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred. Explanation.- For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor. (2) The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with such fee as may be prescribed. (3) The financial creditor shall, along with the application furnish- (a) record of the default recorded with the ....
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..... Section 18 of the Limitation Act, providing for the extension of period of limitation on acknowledgment of the liability, which is strongly relied upon by the respondents, reads as under:- "18. Effect of acknowledgment in writing. -- (1) Where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgment of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed. (2) Where the writing containing the acknowledgment is undated, oral evidence may be given of the time when it was signed; but subject to the provisions of the Indian Evidence Act, 1872 (1 of 1872), oral evidence of its contents shall not be received. Explanation.--For the purposes of this section,-- (a) an acknowledgment may be sufficient though it omits to specify the exact nature of the property or right, or avers that the time for payment, delivery, performance or....
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....ession of immovable property mortgaged and afterwards transferred by the mortgagee for a valuable consideration *** *** *** 62.To enforce payment of money secured by a mortgage or otherwise charged upon immovable property maximisation of value of assets of such persons and balance of interest of all the stakeholders. As observed by this Court in Civil Appeal Nos. 8512-8527 of 2019 etc.: Anuj Jain v. Axis Bank Limited and Ors., decided on 26.02.2020 18.2. One of the earliest decisions, wherein this Court dealt with the provisions of IBC in sufficient detail while explaining the raison d'être for this enactment and a paradigm shift in law, had been in the case of Innoventive Industries (supra) that was decided on 31.08.2017. Therein, this Court, inter alia, pointed out that 'one of the important objectives of the Code is to bring the insolvency law in India under a single unified umbrella with the object of speeding up of the insolvency process'. 18.2.1. In the case of Innoventive Industries, this Court was essentially concerned with the question as to whether the proceedings under IBC could be stalled where there was a moratorium to the company concerne....
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....pect of provision of goods or services. 28. When it comes to a financial creditor triggering the process, Section 7 becomes relevant. Under the Explanation to Section 7(1), a default is in respect of a financial debt owed to any financial creditor of the corporate debtor - it need not be a debt owed to the applicant financial creditor. Under Section 7(2), an application is to be made under subsection (1) in such form and manner as is prescribed, which takes us to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Under Rule 4, the application is made by a financial creditor in Form 1 accompanied by documents and records required therein. Form 1 is a detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part II, particulars of the proposed interim resolution professional in Part III, particulars of the financial debt in Part IV and documents, records and evidence of default in Part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed with the adjudicating authority by registered post or speed post to the registered office of the corporate debtor. The....
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....assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code. This, in turn, will promote entrepreneurship as the persons in management of the corporate debtor are removed and replaced by entrepreneurs. When, therefore, a resolution plan takes off and the corporate debtor is brought back into the economic mainstream, it is able to repay its debts, which, in turn, enhances the viability of credit in the hands of banks and financial institutions. Above all, ultimately, the interests of all stakeholders are looked after as the corporate debtor itself becomes a beneficiary of the resolution scheme-workers are paid, the creditors in the long run will be repaid in full, and shareholders/investors are able to maximise their investment. Timely resolution of a corporate debtor who is in the red, by an effective legal framework, would go a long way to support the development of credit markets. Since more investment can be made with funds that have come back into the economy, business then eases up, which leads, overall, to higher economic growth and development of the Indian economy. What is interesting to note is that the Preamble....
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....ion...." (emphasis in bold supplied) 19. The expositions abovementioned make it clear that the Insolvency and Bankruptcy Code, 2016 has been enacted to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons and other entrepreneurs in a time bound manner so as to ensure maximisation of value of assets of such persons and to balance the interest of all the stakeholders. As regards corporate debtor, the primary focus of the Code is to ensure its revival and continuation by protecting it from its own management and, as far as feasible, to save it from liquidation. As tersely put by this Court in Swiss Ribbons (supra), the Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. 19.1. When the Corporate Insolvency Resolution Process is understood on the anvil of the aforementioned fundamentals on the spirit and intent of IBC, it is also evident that such a process is not intended to be adversarial to the corporate debtor but is essentially to protect its interests. 19.2. In relation to a financial creditor, the trigger for CIRP is defaul....
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....is Court in Innoventive Industries (supra), the question of applicability of the Limitation Act to the Code remained a matter of debate in various decisions of NCLT and NCLAT. Such a debate and the doubts generated thereby were dealt with by the Insolvency Law Committee who, in its report made in the month of March, 2018, recommended for introduction of the requisite provision in the Code so as to leave no room of doubt that the Limitation Act indeed applies to the proceedings under the Code. This ultimately led to the insertion of the said Section 238-A into the Code with retrospective effect from 06.06.2018. However, the validity of this Section 238-A was also questioned before this Court and this culminated into the elaborate decision of this Court in the case of B.K. Educational Services (supra) that was rendered on 11.10.2018. 22. In B.K. Educational Services (supra), while upholding the validity of Section 238-A of the Code, this Court took note of the said report of the Insolvency Law Committee and observed as under:- "11. Having heard the learned counsel for both sides, it is important to first set out the reason for the introduction of Section 238-A into the Co....
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....y under the Limitation Act may be on a case-to-case basis. It was further noted that the Limitation Act may not apply to applications of corporate applicants, as these are initiated by the applicant for its own debts for the purpose of CIRP and are not in the form of a creditor's remedy." (emphasis in original and supplied) 12. The Report of the Committee would indicate that it has applied its mind to judgments of NCLT and NCLAT. It has also applied its mind to the aspect that the law is a complete Code and the fact that the intention of such a Code could not have been to give a new lease of life to debts which are time-barred." (emphasis in bold supplied) 22.1. Further, in B.K. Educational Services, this Court extensively dealt with the issues as to whether the Code being exhaustive in nature, would result in overriding the Limitation Act and as to whether the object of the legislature was to apply the limitation prescribed under the Code retrospectively. This Court, relying on a plethora of judgments and the said Insolvency Law Committee Report of March, 2018 stated the views in no uncertain terms that,- "34....... the legislature did not co....
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.... 24. Thereafter, the case of K. Sashidhar (supra) was decided on 05.02.2019. Therein, the principal issue related with the dispensation governing the process of approval or rejection of resolution plan by the Committee of Creditors-'CoC' for short but, having regard to the variety of contentions urged, this Court took note of the decisions elaborately dealing with the legislative history of the Code including that in Innoventive Industries (supra). During the course of submissions, the said decision in B.K. Educational Services was also cited and hence, the same was referred to and the ratio therein was explained in the following passage: "78. As regards the decision in B.K. Educational, the Court was called upon to consider the question as to whether the Limitation Act, 1963 will apply to applications that are made under Section 7 and/or Section 9 of the Code on and from its commencement on 1-12-2016 till 6-6-2018. That question was examined in the context of Section 238-A inserted in the I&B Code by the self-same Amendment Act of 2018. The Court after adverting to the contents of the report of the Insolvency Law Committee of March 2018 and other provisions of the Code ....
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....CX-SX and called upon La-Fin to purchase these shares in terms of the undertaking. On 16.08.2012, La-Fin replied with denial of any legal or contractual obligation to buy the aforesaid shares. Ultimately, on 19.06.2013, IL&FS filed Suit No. 449 of 2013 in the Bombay High Court for specific performance of the letter of undertaking by La-Fin or, in the alternative, for damages while stating that the cause of action arose on 16.08.2012 when La-Fin refused to honour its obligation. Interim injunction was granted in the said suit on 13.10.2014. Thereafter, on 03.11.2015, a statutory notice under Sections 433 and 434 of the Companies Act, 1956 was issued by IL&FS to La-Fin while referring to the attachment of the properties of La-Fin by Economic Offences Wing of the Mumbai Police and stating that La-Fin was obviously in no financial position to pay the amount it owed to IL&FS. This notice was followed up by the winding up petition that was filed on 21.10.2016 by IL&FS against La-Fin in the Bombay High Court under Section 433(e) of the Companies Act, 1956. As noticed, this company petition was transferred to NCLT and was heard as an application under Section 7 of the Code. This transferre....
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....d in that context, made the observations that are relied upon by the parties and read as under:- "21. The aforesaid judgments correctly hold that a suit for recovery based upon a cause of action that is within limitation cannot in any manner impact the separate and independent remedy of a winding-up proceeding. In law, when time begins to run, it can only be extended in the manner provided in the Limitation Act. For example, an acknowledgment of liability under Section 18 of the Limitation Act would certainly extend the limitation period, but a suit for recovery, which is a separate and independent proceeding distinct from the remedy of winding up would, in no manner, impact the limitation within which the winding-up proceeding is to be filed, by somehow keeping the debt alive for the purpose of the winding-up proceeding." 25.4. Moreover, after reading the provisions contained in Sections 433(e) and 434 of the Companies Act, 1956, for winding up in case of company being unable to pay its debts, this Court made yet further observations in Jignesh Shah (supra) that the trigger for limitation in such an action occurs when a default takes place after which the debt remains ....
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....ecision had been in the case of Vashdeo R. Bhojwani (supra) that was rendered on 02.09.2019. In that case, a default of Rs. 6.7 crores was found against the corporate debtor whose account was declared NPA by the lender bank on 23.12.1999 and ultimately, a recovery certificate dated 24.12.2001 was issued for this amount. Later on, the financial creditor filed an application under Section 7 of the Code before the Adjudicating Authority on 21.07.2017 claiming that the said amount together with interest, which kept ticking from 1998, was payable to it as assignee. The application under Section 7 was admitted on 05.03.2018 by the Adjudicating Authority stating that 'as the default continued, no period of limitation would attach and the petition would, therefore, have to be admitted'. The Appellate Tribunal dismissed the appeal against the aforesaid order of admission while stating that 'since the cause of action in the present case was continuing, no limitation period would attach'; and while further holding that the recovery certificate of 2001 plainly showed that there was a default and there was no statable defence. After taking note of the relevant facts and the foundation of the or....
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....is the very essence of a continuing wrong that it is an act which creates a continuing source of injury and renders the doer of the act responsible and liable for the continuance of the said injury. If the wrongful act causes an injury which is complete, there is no continuing wrong even though the damage resulting from the act may continue. If, however, a wrongful act is of such a character that the injury caused by it itself continues then the act constitutes a continuing wrong. In this connection it is necessary to draw a distinction between the injury caused by the wrongful act and what may be described as the effect of the said injury. It is only in regard to acts which can be properly characterised as continuing wrongs that Section 23 can be invoked. Thus considered it is difficult to hold that the trustees' act in denying altogether the alleged rights of the Guravs as hereditary worshippers and in claiming and obtaining possession from them by their suit in 1922 was a continuing wrong. The decree obtained by the trustees in the said litigation had injured effectively and completely the appellants' rights though the damage caused by the said decree subsequently continued." ....
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....Debal Banerjee, learned Senior Counsel, appearing on behalf of the respondents, countered this by stressing, in particular, para 7 of B.K. Educational Services Private Limited (supra) and reiterated the finding of the NCLT that it would be Article 62 of the Limitation Act that would be attracted to the facts of this case. He further argued that, being a commercial Code, a commercial interpretation has to be given so as to make the Code workable. 6. Having heard the learned counsel for both sides, what is apparent is that Article 62 is out of the way on the ground that it would only apply to suits. The present case being "an application" which is filed under Section 7, would fall only within the residuary Article 137. As rightly pointed out by learned counsel appearing on behalf of the appellant, time, therefore, begins to run on 21.07.2011, as a result of which the application filed under Section 7 would clearly be time-barred. So far as Mr Banerjee's reliance on para 7 of B.K. Educational Services Private Limited (supra), suffice it to say that the Report of the Insolvency Law Committee itself stated that the intent of the Code could not have been to give a new lease of l....
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....ial to the corporate debtor but is aimed at protecting the interests of the corporate debtor; (c) that intention of the Code is not to give a new lease of life to debts which are time-barred; (d) that the period of limitation for an application seeking initiation of CIRP under Section 7 of the Code is governed by Article 137 of the Limitation Act and is, therefore, three years from the date when right to apply accrues; (e) that the trigger for initiation of CIRP by a financial creditor is default on the part of the corporate debtor, that is to say, that the right to apply under the Code accrues on the date when default occurs; (f) that default referred to in the Code is that of actual non-payment by the corporate debtor when a debt has become due and payable; and (g) that if default had occurred over three years prior to the date of filing of the application, the application would be time-barred save and except in those cases where, on facts, the delay in filing may be condoned; and (h) an application under Section 7 of the Code is not for enforcement of mortgage liability and Article 62 of the Limitation Act does not apply to this application. Whether Section 18 Limitation Act ....
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....nder Section 7 of the Code while holding that the limitation started ticking from the date of issuance of recovery certificate dated 24.12.2001. Again, in the case of Gaurav Hargovindbhai Dave (supra), where the date of default was stated in the application under Section 7 of the Code to be the date of NPA i.e., 21.07.2011, this Court held that the limitation began to run from the date of NPA and hence, the application filed under Section 7 of the Code on 03.10.2017 was barred by limitation. 32.2. In view of the above, we are not inclined to accept the arguments built up by the respondents with reference to one part of observations occurring in paragraph 21 of the decision in Jignesh Shah (supra). 33. Apart from the above and even if it be assumed that the principles relating to acknowledgement as per Section 18 of the Limitation Act are applicable for extension of time for the purpose of the application under Section 7 of the Code, in our view, neither the said provision and principles come in operation in the present case nor they enure to the benefit of respondent No. 2 for the fundamental reason that in the application made before NCLT, the respondent No. 2 specifically s....
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.... 238-A of the Code read with the above-referred consistent decisions of this Court) does not, in any manner, deal with any of the rights of respondent No. 2; it only bars recourse to the particular remedy of initiation of CIRP under the Code. Equally, the other submissions made on behalf of the respondents about any stringent application of the law of limitation which was introduced to the Code only after filing of the application by respondent No. 2; or about the so called prejudice likely to be caused to other banks and financial institutions are also of no substance, particularly in the light of the principles laid down and consistently followed by this Court right from the decision in B.K. Educational Services (supra). These contentions have only been noted to be rejected. Needless to add that when the application made by the respondent No. 2 for CIRP is barred by limitation, no proceedings undertaken therein after the order of admission could be of any effect. All such proceedings remain non-est and could only be annulled. The reasonings of NCLAT 35. The foregoing discussion practically concludes the principal part of contentions urged in this matter but, to put the reco....
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....ode, this Court said,- "3. Article 141 of the Constitution of India mandates that our judgments are followed in letter and spirit. The date of coming into force of the IB Code does not and cannot form a trigger point of limitation for applications filed under the Code. Equally, since "applications" are petitions which are filed under the Code, it is Article 137 of the Limitation Act which will apply to such applications." 37. The other observations as made and the reasoning as adopted by the Appellate Tribunal in paragraphs 29 and 30 of the impugned order, that the property having been mortgaged, the claim is not barred by limitation because of the period of limitation of twelve years with regard to mortgaged property, had again been erroneous and do not stand in conformity with the dictum of this Court. 37.1. The Appellate Tribunal was conscious of the decision of this Court in B. K. Educational Services (supra) wherein it had been held in no uncertain terms that the limitation provided in Article 137 governs the application under Section 7 of the Code. When Article 137, being the residuary provision on the period of limitation for "other applications" is held appli....
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.... Summation 38. The discussion foregoing leads to the inescapable conclusion that the application made by the respondent No. 2 under Section 7 of the Code in the month of March 2018, seeking initiation of CIRP in respect of the corporate debtor with specific assertion of the date of default as 08.07.2011, is clearly barred by limitation for having been filed much later than the period of three years from the date of default as stated in the application. The NCLT having not examined the question of limitation; the NCLAT having decided the question of limitation on entirely irrelevant considerations; and the attempt on the part of the respondents to save the limitation with reference to the principles of acknowledgment having been found unsustainable, the impugned orders deserve to be set aside and the application filed by the respondent No. 2 deserves to be rejected as being barred by limitation. Other proceedings not to be affected 39. Before concluding on this matter, we would hasten to observe that admittedly, at the time of moving of the application under Section 7 of the Code by the respondent No. 2, a petition under Section 19 of the Act of 1993 was pending before DRT....